On 27 February 2019, three recently published decisions (IR 51/17, IR / 73/16, and IR 81/17) provided that the German Federal Tax Court (BFH) had changed its opinion on the application of transfer pricing (TP) rules in relation to transfer pricing the write-off of intra-group receivables in certain cases in connection with an applicable tax treaty. The court rejected a tax deduction for the write-off of the claim for an unsecured loan in the one case in which it made a final decision and changed its previous opinion. The new position of the BFH extends the circumstances under which transfer pricing adjustments can be made if there is a deviation from the arm’s length principle.
In the three cases, German multinationals incurred losses from foreign receivables on current accounts for deliveries, loans or a guarantee arrangement, in cases where there was an applicable German tax treaty with a provision equivalent to article 9 of the OECD model.
The Federal Tax Court ruled that in all three cases it was possible to apply the transfer pricing rules to withhold a tax deduction for the loss, but only made a final decision in one case and returned the other two cases to the subordinate court for further review the facts. The relevant facts for this purpose included when a third party would demand collateral for an increasing balance of a checking account, whether the collateral actually provided was sufficient in one case and whether a 50% participation is a sufficient indication of the behavior of a third party.
